We live in interesting financial times and although most lines of credit have dried up for the majority of people, there are some options available for those in a certain situation. Reverse mortgages are one such method of cashing in on the equity in your property.
Equity release is not a new concept. As house prices have risen (before the stabilisation of the last few years), many property owners have found themselves in possession of a house which is worth twice or three times as much as they paid for, far outstripping rises in inflation and the aforementioned plateau in price house prices. Equity release is the term given to the way in which a homeowner in that position can convert some of that inbuilt profit to real cash. A remortgage is a basic way to achieve that.
Reverse mortgages will release equity
Reverse mortgages are another way of getting some of that cash – it’s available in the United States but largely unknown in Europe. It’s a federally regulated scheme that essentially allows a homeowner over the age of 62 to borrow money proportionate to the value of the house. The more your house is worth, the more money you an borrow. The main advantage is that the borrower never has to pay the loan back; ultimately the lender will take the property on the death of the applicant. The borrower can take the loan as a lump sum, a series of monthly payments or a bit of both.
The small print is as follows:
- You must be over 62.
- You must live in the house.
- Each deed holder must be on the loan application and meet the appropriate requirements.
- The current mortgage must be paid off or be lower than the loan amount.
- You must keep up with taxes and home insurance for the life of the loan.
- Just like a mortgage, there will be closing costs but this can be incorporated into the loan.
It’s not a perfect scheme but it does enable those who apply to enjoy that equity if they are cash poor. Don’t forget though, your house is your kid’s inheritance so perhaps run the scheme by them if you’re thinking about it……..
